U.S. Factories Probably Expanded at Fastest Rate in Three Years

U.S. Factories Probably Expanded at Fastest Rate in Three Years


Oct. 1 (Bloomberg) -- U.S. manufacturing probably expanded last month at the fastest pace in more than three years and consumer spending in August grew the most since 2003 as the recession eased, economists said ahead of reports today.

The Institute for Supply Management’s factory gauge rose to 54 in September from 52.9 the month before, according to the median forecast in a Bloomberg News survey of economists. Fifty is the dividing line between expansion and contraction. Another report may show purchases rose 1.1 percent in August.

A record drawdown in inventories earlier this year and stimulus programs such as “cash for clunkers” set the stage for more production and a return to economic growth last quarter. While output and spending may slow in coming months as the government’s measures expire, economists say a recovery is under way.

“As long as manufacturing gauges continue to expand, it’s going to suggest that the recovery in the economy is more durable,” said Jonathan Basile, an economist at Credit Suisse in New York.

The Tempe, Arizona-based purchasing managers’ factory report is due at 10 a.m. New York time. Estimates in the Bloomberg survey of 80 economists ranged from 51.5 to 56. The projected reading would be the highest since April 2006.

A Commerce Department report due at 8:30 a.m. may show the August gain in consumer spending was accompanied by a 0.1 percent increase in personal incomes, according to the survey.

The National Association of Realtors, meanwhile, may say the number of contracts to buy previously owned homes rose in August at a slower pace than the prior month.

Clunker Effect

Ford Motor Co, General Motors Co. and Honda Motor Co. are among automakers that have cited the popularity of the Obama administration’s cash-for-clunkers plan as they announced production increases for the coming months.

The program, which ended Aug. 24, offered discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan produced almost 700,000 sales before it ended, the Transportation Department said Aug. 26.

Economists yesterday said the end of the incentive may have helped fuel a weaker-than-forecast September reading for the Institute for Supply Management-Chicago’s business survey, which found activity dropped. The Chicago group is not a chapter of the national Institute for Supply Management.

Other gauges released last month indicate the expansion in manufacturing is accelerating. The Federal Reserve Bank of Philadelphia said its economic index rose to 14.1, the highest since June 2007, while a similar measure from the New York Fed increased to 18.9, the highest since November 2007.

Fed Assessment

The Federal Open Market Committee last week left the target rate for overnight loans between banks at a record low of between zero and 0.25 percent, while policy makers said for the first time since August 2008 that the economy is growing.

“Economic activity has picked up following its severe downturn,” Fed policy makers said Sept. 23 in a statement. “Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit.”

GM said last week that it will add a third shift at three U.S. plants taking on additional production from factories slated to close or be idled. The facilities getting the new shifts are in Fairfax, Kansas; Fort Wayne, Indiana; and Delta Township, Michigan, GM said in a statement. The changes will restore 2,400 jobs, the Detroit-based company said.

An additional 600 jobs will be restored at stamping and powertrain facilities, Tim Lee, the company’s vice president of global manufacturing, said on a conference call.

Inventory Cuts

Leaner inventories are helping factories return to work as companies restock shelves. Stockpiles dropped at a record $160.2 billion annual rate in the second quarter, the Commerce Department said yesterday, after shrinking at a $113.9 billion pace in the first three months of the year.

Even so, an unexpected drop in durable-goods orders in August was a reminder that companies remain cautious.

“As we look at the economic data, it’s certainly encouraging,” DuPont Co. Chairman Charles O. Holliday said in an interview on Sept. 23. Nonetheless, he said, the third- largest U.S. chemical maker must not “get ahead of ourselves to build inventory too fast or assume we’re going to come out in a rapid-fire order, because I assume we’ll come out at a much different pattern than before.”

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